Trade margins of rubber exporters: The case of Indonesia

Abstract

This study used a two-step system generalized method of moment (GMM) and spatial aspects to analyze Indonesia’s trade margins of a rubber product to export destination countries over the period 2009–2018. The study unraveled the role of non-tariff measures such as sanitary and phytosanitary (SPS), technical barriers to trade (TBT), and gravity factors in determining rubber trade margins. Our empirical strategies revealed that sanitary and phytosanitary policies negatively affect trade margins, while the technical barrier to trade and foreign direct investment (FDI) asserts a positive impact on trade margins. However, the economics of scale, port, and contiguity increases extensive margin and reduces intensive, population size, distance, and language barrier reduce extensive margin and increase intensive margin. Further evidence revealed that high population size and port quality accompanied by high FDI and distance increases extensive margin and reduces intensive margin. High economics of scale accompanied by distance, port quality, FDI, and population size reduces both trade margins. Our empirical strategy from the spatial analysis does not give overall significant results on each variable as only economies of scale and population size seem to have a spatial influence on trade margins. The study, therefore, recommends that innovation both in terms of technology, like industrial innovation in the field of rubber processing and certification related to rubber commodities, needs to be increased to intensify and expand Indonesia’s rubber market share.